Heterogeneity of labor markets and city size in an open spatial economy (original) (raw)
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Chapter 9. Spatial Equilibrium in the Labor Market
Over long periods of human history, labor market equilibrium involved movements from low-wage areas to high-wage areas, a form of arbitrage under the implicit view that wage differentials corresponded to utility differentials. This " labor economics " view is likely to be viable as long as movement and information costs are high, and under this view the movements would be expected to cause wage convergence over space. In recent decades, perhaps beginning as early as the 1960's, both the out of pocket and psychological costs of movement have plummeted with advances in transportation and communication technology and innovation. In addition, these same advances have enabled individual households and firms to have vastly improved information about potential benefits of locating in a host of potential locations. These observations, along with recently failures to observe convergence in wage rates, suggest that an alternative view—assuming a utility equilibrium over space—might better predict and explain the labor market equilibrium. This " urban/regional economics " view takes wages and rents as being compensatory for varying levels of household and firm amenities. In this view, whether the spatial equilibrium in labor markets involves convergence or divergence becomes quite a complicated issue. This chapter explores a number of the complexities, hinting at a broad range of potentially very fruitful future research.
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Journal of Economic Theory, 2002
argues that uncompensated knowledge spillovers have played a crucial role in population agglomeration and thus in the generation of cities. We explore this idea formally by extending the Romer (1986) model of (inter-firm) externalities in production to an explicit spatial context. We postulate that knowledge spillovers between firms decrease with the distance between the firms. A general equilibrium model with households and firms residing in a linear or long, narrow city is constructed. The allocation of goods and factors, the locational choice of firm sites and household residences, as well as factor prices and land rents are all endogenously determined. The equilibrium urban configuration may be concentrated (with monocentric firm locations), dispersed (with completely mixed firm and household locations) or a combination (with incompletely mixed firm and household locations), depending on the population of firms as well as the transportation and firm-interaction parameters. Due to the distance-dependent production externalities, firms will be clustered together in any equilibrium. As a consequence, the duo-centric or any multi-centric urban configuration is never an equilibrium configuration. Moreover, except for a set of parameters of measure zero, the equilibrium urban configuration is unique. JEL Classification: D51; R12 Acknowledgments: We are very grateful to Masa Fujita for his insightful comments.
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Over long periods of human history, labor market equilibrium involved movements from low-wage areas to high-wage areas, a form of arbitrage under the implicit view that wage differentials corresponded to utility differentials. This “labor economics” view is likely to be viable as long as movement and information costs are high, and under this view the movements would be expected to cause wage convergence over space. In recent decades, perhaps beginning as early as the 1960’s, both the out of pocket and psychological costs of movement have plummeted with advances in transportation and communication technology and innovation. In addition, these same advances have enabled individual households and firms to have vastly improved information about potential benefits of locating in a host of potential locations. These observations, along with recently failures to observe convergence in wage rates, suggest that an alternative view — assuming a utility equilibrium over space — might better predict and explain the labor market equilibrium. This “urban/regional economics” view takes wages and rents as being compensatory for varying levels of household and firm amenities. In this view, whether the spatial equilibrium in labor markets involves convergence or divergence becomes quite a complicated issue. This chapter explores a number of the complexities, hinting at a broad range of potentially very fruitful future research.
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We consider an economy with three cities producing different outputs. Two cities produce intermediate goods, a type 1 city producing an intermediate “agricultural” good with capital and labor only, and a type 2 city producing an intermediate “industrial” good with capital, labor, and human capital. A type 3 city produces the final good which is obtained from the two intermediate goods and labor. The asymmetric introduction of human capital allows us to prove that the three cities experience, at equilibrium, heterogeneous endogenous growth rates which are proportional to the growth rate of human capital. We show that the “industrial” type 2 city is characterized by the larger growth rate while the “agricultural” type 1 city experiences the lower growth rate, and thus the type 3 city is characterized by a growth rate which is a convex combination of the two former growth rates. This implies that the relative size in terms of output of the “agricultural” city decreases over time. This ...
Spatial Equilibrium in Labor Markets
Springer eBooks, 2018
Over long periods of human history, labor market equilibrium involved movements from lowwage areas to high-wage areas, a form of arbitrage under the implicit view that wage differentials corresponded to utility differentials. This "labor economics" view is likely to be viable as long as movement and information costs are high, and under this view the movements would be expected to cause wage convergence over space. In recent decades, perhaps beginning as early as the 1960's, both the out of pocket and psychological costs of movement have plummeted with advances in transportation and communication technology and innovation. In addition, these same advances have enabled individual households and firms to have vastly improved information about potential benefits of locating in a host of potential locations. These observations, along with recently failures to observe convergence in wage rates, suggest that an alternative view-assuming a utility equilibrium over space-might better predict and explain the labor market equilibrium. This "urban/regional economics" view takes wages and rents as being compensatory for varying levels of household and firm amenities. In this view, whether the spatial equilibrium in labor markets involves convergence or divergence becomes quite a complicated issue. This chapter explores a number of the complexities, hinting at a broad range of potentially very fruitful future research.
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SSRN Electronic Journal, 2019
We study decentralized and optimal urbanization in a simple multi-sector model of a rural-urban economy focusing on productivity differences and internal trade frictions. We show that even in the absence of the typical externalities studied in the literature, such as agglomeration, congestion or public goods, the decentralized city size can be either too large or too small relative to that chosen by a planner. In particular, optimal urbanization exceeds decentralized levels when productivity differences in location specific non-traded goods is small, a case typically arising in developed economies. In contrast, developing countries are likely to display overurbanization. A numerical exercise calibrated to Brazilian data suggests that the wedges can be quantitatively important. Urban biased policies-placing a higher weight on the welfare of city dwellers-are closer to optimal policies than decentralized allocations whenever productivity differences in non-traded sectors are either very small or very large. For intermediate productivity differences, the urban bias leads to larger cities even relative to decentralized policies.
Journal of Regional Science, 2001
If economic growth elsewhere raises an individual's earning prospects relative to his present location, then the individual will move. However, if the individual can exploit economic growth elsewhere by commuting, he will not need to move to gain from the expansion. County-level data from eight states in the Midwest over the period 1969-1994 are used to show that local county population responds positively to own-county economic growth, economic growth in the adjacent county, and economic growth two counties away. The magnitude of the effect decreases as distance from the county increases, and turns negative beyond a three county radius.